An old saying in retail is…you must sell what you have (a.k.a. sell what you have today). While that is true, there is a little more than that to consider.
Retail is defined by its performance in sales. It measures this performance in many different ways. These ways are made up of numbers. And the numbers represent the score. You have to exceed a certain score to stay in retail. I could say at a minimum you must maintain a score to stay. I would rather make money than break even.
Let’s start at the very beginning. Things come at a cost. The retailer buys at a cost. This is referred to as Cost of Goods (COG). The customer is then sold a widget at a cost. The amount of the purchase must never exceed the COG. If it does, it is a loss. If it doesn’t, it’s called gross profit (GP). GP is one of the retailer’s most important numbers. Although, one might argue Net Profit is the more important number. GP precedes all the costs that are subtracted from it, like Cost of Operations (COO), Cost of Acquisition (COA, e.g. marketing), Payroll and others not mentioned. Then you get Net Profit. That is at the company level. Are you sleeping yet? I get it. No humorous anecdote or analogy. Not even a baseball reference.
Store Managers are tasked with keeping track of the score at the store level. GP could very well be measured here. In fact, I know several retailers who definitely measure this very closely in the store and especially regarding the performance of the individual team members.
Traditional retail has a few others. Take Average Sale (AS). This score factors what a team member produces in sales with the number of transactions. Obviously, you want this high. A good sign is a low number of transactions when compared to a high number in sales. Another score, which by the way directly impacts AS is Items per Sale (IPS). IPS takes into account the number of items sold with the number of transactions. The minimum score would be 1 item for each transaction. You cannot sell less than one item in any one transaction. So add on as much as possible, which will impact your AS. Another common score is Sales per Hour (SPH). Simply put, you worked this number of hours and they factored with your number in sales.
There many, many others. The two others I will refer to are my favorites. One is Payroll Cost Percentage. This looks at the amount of payroll compared with sales. You want this number to be low, and as low as possible. Now this isn’t always as easy to factor as it seems. Payroll involves taxes, benefits, etc. You can come to a consensus. The key is to evaluate if the team is producing a certain score to give you a good percentage.
The second in my mind represents the most important in retail…Conversion Rate. Now this one is very easy to calculate. Take the number of people who walk in and factor how many bought something. 10 walked in, 2 bought something and 8 did not. 20%. How would respond to your sales team? Is that acceptable? Enough said.
Now remember, retail must measure the stores result and team member result. When comparing the two, it can be very illuminating who your performers are whether within the store. Although, comparing team member’s results to a store average is not the best way to go. If all the team member numbers were sub-par, then your store average would be sub-par. And then you would be comparing sub-par to sub-par. In my opinion, it always better to compare a team member’s performance to a target, not the store average. Then it is a comparison to a better game to play.
I realize this post was black and white. Maybe not as amusing as others. I always want to grow others. And sometimes it falls into these kinds of topics. So maybe a question for you to consider is…
The score is a result of __________.
What do you think? Maybe I should make this a part three. Yep!
Cheers